International Finance Discussion Paper· 2022
Measuring Geopolitical Risk
- 211citations
- 2022year
Short summary
A new news-based Geopolitical Risk (GPR) index shows spikes around major global conflicts and crises, foreshadowing lower investment and employment.
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Key points
- A new Geopolitical Risk (GPR) index is created using news-based data.
- The GPR index shows significant spikes during major historical geopolitical events.
- Higher GPR is associated with lower investment and employment.
- Both the threat and realization of geopolitical events contribute to adverse economic consequences.
AI-generated from the title and abstract; the full text is not read.
Abstract
<ns2:p>We present a news-based measure of adverse geopolitical events and associated risks. The geopolitical risk (GPR) index spikes around the two world wars, at the beginning of the Korean War, during the Cuban Missile Crisis, and after 9/11. Higher geopolitical risk foreshadows lower investment and employment and is associated with higher disaster probability and larger downside risks. The adverse consequences of the GPR index are driven by both the threat and the realization of adverse geopolitical events. We complement our aggregate measures with industry- and firm-level indicators of geopolitical risk. Investment drops more in industries that are exposed to aggregate geopolitical risk. Higher firm-level geopolitical risk is associated with lower firm-level investment.</ns2:p>
The authors' abstract, as published at the source. International Finance Discussion Paper, 2022 · DOI ↗
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Field: General Energy
General EnergyEnergy